Need for pragmatism

Need for pragmatism

Since the launch of ‘Manmohanomics’ by the Narasimha Rao government in 1991 the Foreign Direct Investment (FDI) has been touted as the magic wand that will transform ‘under-developed’ India into an advanced nation with a ‘modern’ infrastructure. Every government that has followed has dutifully talked of taking steps to encourage and expand FDI.

It’s true India lately is receiving a lot of FDI as well as FII investments. So far India has received a record $16 billion of FDI investment in 2006-07. Is the picture of foreign investments as rosy as projected by the players of World Bank lobby here in India? The answer is probably not so positive.

There is definite danger of the uncontrolled FDI and FII in our economy. Critics like Jayati Ghosh have been warning of the potential dangers associated with FDI. They have pointed out how the majority of FDI has come in the form of speculative investments in India’s stock market, where select scrips have seen phenomenal jumps in their stock prices, while stocks of some major Indian manufacturing companies have languished at very low valuations. They have also warned that such speculative investments could leave just as easily as they came, leading to greater instability in India’s financial markets.

Others have pointed out how FDI flows have simply enabled trans-national giants like Coke and Pepsi to set up monopolies in highly profitable sectors where Indian business concerns were already meeting the requirements of the market. Coke and Pepsi, with their monopolistic stranglehold on the bottling and distribution chain have wiped out niche producers; consumers have less choice than they did before, and must pay more. Neither of these companies has brought in any valuable new technology.

Moreover, the benefits of the FDI foreign exchange inflows are one time, because they are being consumed, while the potential foreign obligations are perpetual and long-term. FDI may not have a contractual payback as loans, but it is not a free lunch. In fact dividend payments on FDI are usually very high, to account for the higher risks.

Advocates of globalisation have often made the claim that globalisation rather than destroying Indian industry would instead accelerate the growth of new industry and cause India’s economy to grow faster. But a detailed analysis of FDI in the last few years indicates that a sizeable portion of this investment has not gone into the creation of new productive capacities.
Much of the investment has simply gone into the takeover of existing Indian enterprises or towards speculative investments in the Indian stock market. Moreover, other than India’s ‘hot’ IT companies and select MNCs — the vast majority of Indian stocks have not benefited from such highly volatile FDI flows.

Hawala transactions
Besides, time and again questions have been raised by various critics about the channel of funding which is coming through the FDI and FII investments. Many have argued that a large chunk of FII investment from West Asia could be via the hawala transactions as well as funds from various terror outfits. Such a danger cannot be ruled out and India needs to be very cautious about this aspect.
“Formulating and implementing an effective FDI strategy requires above all a development vision, coherence and coordination. It also requires the ability to decide on trade-offs between different objectives of development,” says Rubens Ricupero, secretary-general of the United Nations Conference on Trade and Development (UNCTAD) in World Investment Report 1999.

“The challenge,” says UNCTAD, “for TNCs and developing country governments — and the international community — is to devise ways in which a transfer of environmentally sound management practices and clean technology into the domestic industry can be encouraged.”

Clearly for countries like India such policies at the government level is still missing and a lot more needs to be done. Our environmental laws and technical laws need wide reformations and review so as to put a cap on dangers of MNCs taking advantages of obsolete laws and bypassing them without any environmental and technical safety standards in their rush for investments into the Indian economy.
Another sector where danger looms large is the FDI in retail sector. Already huge problems have arisen with the opening up of this sector. FDI in retail will amount to job losses in the thousands as well as thousands more small businesses and ‘kiranas’ being forced to close. It will continue the race to the bottom in wages and working conditions that Wal-Mart and other multinational mega-retailers have spread across the globe.

Multinationals look at India, with its 1.2 billion people, as a vast, untapped market, but we do not want to become the next country to have our cultural traditions, worker’s rights, environment, and independence destroyed. On the heels of the announcement of the Bharti-Walmart joint venture, thousands of traders, hawkers, farmers and workers protested across India.

Thus dangers of uncontrolled FDI and FII investments for a country like India is multi prone. Besides the economic dangers, there is also a security, strategic and social dangers in it. The government should not shut its eyes towards them.
(The writer is chairman of Global Council for Peace)